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2016 (7) TMI 475 - RAJASTHAN HIGH COURT

2016 (7) TMI 475 - RAJASTHAN HIGH COURT - TMI - Execution of a recovery certificate issued by the Debt Recovery Tribunal under Section 19 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 - Held that:- Having held that this Court has no jurisdiction to entertain a challenge to the order passed by the Recovery Officer rejecting the objections to an auction sale and confirming the bid of the highest bidder at an auction held by him following a recovery certificate issued b .....

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icants before this Court M/s. Bhawani Stone Crushers Pvt. Ltd. as also the Commercial Taxes Department to their remedy of appeal under Section 30 of the Act of 1993 against the order dated 11.12.2015, passed by the Recovery Officer, DRTJ. - In the facts of the case, the delay in filing the appeals for the period during which the objectors have been before this Court i.e. from the date of filing of applications for impleadment and counter application till the date of this order would stand ex .....

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ased at the auction of 19.01.2015 would abide the decision in the appeals. All applications stand disposed of accordingly. - S.B. COMPANY APPLICATION NO.19, 20/2016, S.B. MISC. COMPANY APPLICATION NO.38/2012, S.B. COMPANY PETITION NO.23/2006 - Dated:- 22-4-2016 - MR. ALOK SHARMA, J. For The Appellant : Mr. Shashank Agarwal and Mr. R.N. Vijay, Mr. Ashok Mehta, Sr. Advocate with Mr. Vibhor Kapoor For The Objector : Mr. Gaurav Sharma and Mr. R.B. Mathur and Mr. Amol Vyas For The Official Liquidator .....

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ent Ltd. was wound up by the order of this Court passed on 21.11.2008 in Company Petition No.23/2006. Prior thereto the Official Liquidator was appointed as provisional liquidator vide order dated 05.02.2007 in pursuance whereto he took possession of the moveable and immovable assets of the company aforesaid in winding up. It appears that IFCI Ltd., the secured creditor of the company, seeking to recover its unpaid secured loan advanced to the company had earlier approached the Debt Recovery Tri .....

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der dated 05.02.2007, Application No.38/2012 came to be filed before the Company Court at the instance of the secured creditor-IFCI Ltd. under Rule 9 of the Company (Courts) Rules, 1959 (hereinafter the Rules of 1959 ) seeking permission to stay outside winding up and sell the judgment debtor company's mortgaged properties in terms of the recovery certificate dated 08.07.2004 issued by DRTM. The Official Liquidator did not oppose the application for permission to IFCI Ltd. to stay outside wi .....

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ted with the Official Liquidator; and further that the secured creditor-IFCI Ltd. then file its claim alongwith others, before the Official Liquidator for adjudication / disbursement in accordance with law. On consideration of the matter, the Company Court vide its order dated 29.11.2012 while granting permission sought directed that the auction sale would be confirmed after seeking its permission and that the sale proceeds be deposited with the Official Liquidator. Disbursement was then to be d .....

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on 19.01.2015. M/s. SPC Infrastructure Pvt. Ltd. was found to be the highest bidder at ₹ 2.91 crore for purchase of Lot No.2 i.e. Land & Building. It is not in dispute that the amount as required under the terms and conditions of the auction was deposited within time. Qua movable properties (Lot No.1 Plant & Machinery), ditto for Delhi Tax-Mac Traders. Despite the auction on 19.01.2015, where M/s. SPC Infrastructure Pvt. Ltd. was the highest bidder for the land and building of the .....

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efore this Court in Company Application No.38/2012 inter alia stating that for reasons of delay in confirmation of the bid, the bid amount of ₹ 2.91 crore be directed to be refunded along with accrued interest. This Court was however disinclined to scuttle the auction and direct a refund of the amount of ₹ 2.91 crore, along-with interest dehors the provisions of Schedule-II of the Income Tax Act, 1956 (hereinafter the Income Tax Act ). In the circumstances, it was prayed by the appli .....

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thereto be disposed of within six weeks from the presentation of a certificate copy of the court's order. Company Application No.20/2015 however again came up before this Court on 04.12.2015 on the Recovery Officer's letter dated 05.11.2015 seeking extension of time by six weeks for deciding the application for confirmation of the bid and objections thereto. Vide order dated 04.12.2015, this Court directed that the application for confirmation of auction sale dated 19.01.2015 and the obj .....

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rmation dated 11.12.2015 it is on record that the sale certificate qua the properties sold has been issued in favour of the highest bidder/s and also registered. That however was not the end of the matter as even though the sale certificate/s in respect of the properties auctioned on 19.01.2015 pursuant to the order dated 29.11.2012 were issued and registered, the possession of the properties (both movable and immovable of the company in liquidation) still lies with the Official Liquidator. And .....

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o convey the original title deeds. The Official Liquidator has filed his reply to the application. A factual narration of the happenstance has been mechanically made. It is admitted that the entire bid amount both in respect of movable and immovable properties of the judgment debtor company (in liquidation) has been deposited with the Official Liquidator and sale certificates issued with regard thereto by the Recovery Officer to M/s. SPC Infrastructure Pvt. Ltd. in respect of Lot No.2 i.e. Land .....

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has been regularly following up for recovery of the tax due but was first obstructed by the proceedings against the Company now in winding up under the Sick Industrial Companies (Special Provisions) Act, 1985 (hereinafter 'the Act of 1985'). Thereafter following the recommendations of BIFR, Delhi under Section 20(1) of the Act of 1985 for winding up of the company in default on tax, M/s. Thar Cement Ltd., a provisional liquidator was appointed on 05.02.2007 whereafter complete details o .....

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ction sale of 19.01.2015 had orally objected to the adequacy of the bid of ₹ 2.91 crore in respect of Lot No.2 comprising of Land & Building of the judgment debtor company-M/s. Thar Cement Ltd. (in liquidation), but were overruled by the representative of the secured creditor. And then the highest bid of M/s. SPC Infrastructure Ltd. wrongly accepted. Cartelisation of the bid qua Lot No.2 is alleged. It has been submitted in the alternative that under Section 47 of the Rajasthan Value A .....

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se circumstances, a copy of communication dated 03.03.2006 by the Official Liquidator to whom a claim for disbursement was made treating the claim of the Department as an ordinary claim is inconsistent with the provisions of RST Act and RVAT Act and law settled by the Apex Court. It has been prayed that the auction dated 19.01.2015 be thus set aside or in the alternative, it be directed that the Commercial Tax Department be paid amount dues to it as a first charge to the exclusion of all other c .....

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12.2015, hence without jurisdiction and of no effect. It has been submitted that under the order dated 29.11.2012 whereby the secured creditor-IFCI Ltd. was granted permission of this Court to sell the assets of the judgment debtor company (in liquidation), it was a specific condition that the sale would be confirmed by this Court-the Recovery Officer had in the circumstances no authority to confirm the auction sale and therefore the order dated 11.12.2015 confirming the auction sale is nonest. .....

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Infrastructure Pvt. Ltd. has not yet been lawfully confirmed by this Court as ought to have been for reasons earlier stated, it has no vested right and can be displaced by highest bidder such as the counter applicant-M/s. Bhawani Stone Crushers Pvt. Ltd.-the confirmation of the bid on 11.12.2015 by the Recovery Officer notwithstanding. Throwing every possible argument at the Court, misplaced in the context of the applicant's own offer of a mere ₹ 30 lac over the highest bid, almost a y .....

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te dated 08.07.2004 and Mr. Shashank Agarwal appearing for successful bidder-M/s. SPC Infrastructure Pvt. Ltd have submitted that there is no contravention of the order dated 29.11.2012 passed by this Court in Company Application No.38/2012 in the confirmation of the highest bid by the Recovery Officer on 11.12.2015. Mr. Ashok Mehta pointed out that the operative portion of the order dated 29.11.2012 clearly provided that the auction sale shall be confirmed with the permission of this court. The .....

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would be subject to confirmation by the Company Court. It has been further submitted that even otherwise the factual matrix in M.V. Janardhan Reddy (Supra) were wholly different from the facts in the present case inasmuch as in M.V. Janardhan Reddy (Supra) the allegation was that the secured creditor had not taken steps to take the Official Liquidator into confidence either in respect of valuation of the property to be auctioned or for his participation in the auction sale to ensure that the in .....

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ch was confirmed by the Recovery Officer. Counsel pointed out that admittedly in the present case the Official Liquidator was associated with the valuation of the mortgaged assets as directed by the Company Court in its order dated 29.11.2012 at every stage of the auction sales. No objection as to the valuation of the mortgaged assets or even the highest bid has been raised by him at any point of time. It has been further submitted that the offer belatedly filed by the counter applicant-M/s. Bha .....

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Recovery Officer's jurisdiction to sell (while necessarily includes power to confirm the highest bid) inasmuch as the question as to the jurisdiction of the Company Court in interfering with the recovery proceedings by Banks and Financial Institutions against the defaulting creditors on a recovery certificates issued under the Act of 1993 was neither formulated nor addressed. Further no reasons founded in law, for the Company Court exercising the jurisdiction in respect of such proceedings .....

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e M.V. Janardhan Reddy (Supra) did not take into consideration the prior judgment of the Apex Court in the case of Allahabad Bank Vs. Canara Bank & Anr. [(2000) 4 SCC 406] wherein it was held that without an iota of doubt, the DRT had exclusive and absolute sole jurisdiction in respect of adjudication of claims of secured creditors against the defaulting debtors on applications moved under Section 19 of the Act of 1993 and also in execution of certificates of recovery issued against such def .....

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as also para 30 & 50 of the aforesaid opinion relevant to the complete lack of jurisdiction in the Company Court in matters of adjudication and execution by the Debt Recovery Tribunals on applications made by the secured creditors are reproduced hereinbelow : 21. In our opinion, the jurisdiction of the Tribunal in regard to adjudication is exclusive. The RDB Act requires the Tribunal alone to decide applications for recovery of debts due to Banks or financial institutions. Once the Tribunal .....

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other court or authority which would otherwise have had jurisdiction but for the provisions of the Act, is ousted and the power to adjudicate upon the liability is exclusively vested in the Tribunal. (This exclusion does not however apply to the jurisdiction of the Supreme Court or of a High Court exercising power under Articles 226 or 227 of the Constitution). This is the effect of Sections 17 and 18 of the Act. 22. We hold that the provisions of Sections 17 and 18 of the RDB Act are exclusive .....

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ot the intendment of the Act that while the basic liability of the defendant is to be decided by the Tribunal under Section 17, the Banks/Financial institutions should go to the Civil Court or the Company court or some other authority outside the Act for the actual realisation of the amount. The certificate granted under Section 19(22) has, in our opinion, to be executed only by the Recovery Officer. No dual jurisdictions at different stages are contemplated. Further, section 34 of the Act gives .....

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rogation of, the Industrial Finance Corporation Act, 1948 (15 of 1948), the State Financial Corporations Act, 1951 (63 of 1951), the Unit Trust of India Act, 1963 (52 of 1963), the Industrial Reconstruction Bank of India Act, 1984 (62 of 1984) and the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986)." The provisions of section 34(1) clearly state that the RDB Act overrides other laws to the extent of 'inconsistency'. In our opinion, the prescription of an exclusi .....

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ded in the Act. Point 1 is decided accordingly. Points 2 and 3: Does the Act override the provisions of Sections 442 and 537 and Section 446 of the Company Act? Question of leave and control by the Company Court: 30. Learned Attorney General has, in this connection, relied upon Damji Valji Shah & Another vs. Life Insurance Corporation of India & Others to contend that for initiating and continuing proceedings under the RDB Act, no leave of the Company court is necessary under section 446 .....

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of India to file a case before a special Tribunal and recover various amounts from the erstwhile life insurance companies in certain respects. Section 41 of the LIC Act conferred exclusive jurisdiction on the said Tribunal just like section 18 of the RDB Act, 1993. There the Company was ordered to be wound up by an order of the Company court passed under section 446(1) on 9.1.1959. The claim was filed by the LIC against the Company and its Directors before the Tribunal in 1962. The respondents .....

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ng leave of the Company Court or permitting transfer. It was held by this Court: "In view of section 41 of the LIC Act, the Company Court has no jurisdiction to entertain and adjudicate upon any matter which the Tribunal is empowered to decide or determine under that Act. It is not disputed that the Tribunal has jurisdiction under the Act to entertain and decide matters raised in the petition filed by the corporation under section 15 of the LIC Act. It must follow that the consequential pro .....

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On the same parity of reasoning as in Damji Valji Shah's case, there is no need for the appellant to seek leave of the Company Court to proceed with its claim before the Debt Recovery Tribunal or in respect of the execution proceedings before the Recovery Officer. Nor can they be transferred to the Company Court. 50. For the aforesaid reasons, we hold that at the stage of adjudication under section 17 and execution of the certificate under section 25 etc. the provisions of the RDB Act, 1993 .....

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ction 19(19) read with section 529-A of the Companies Act and in no other manner. The provisions of the RDB Act,1993 are to the above extent inconsistent with the provisions of the Companies act, 1956 and the latter Act has to yield to the provisions of the former. This position holds good during the pendency of the winding up petition against the debtor-company and also after a winding up order is passed. No leave of the Company Court is necessary for initiating or continuing the proceedings un .....

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law in the case of Canara Bank (Supra), it was held by the Apex Court that Section 34 of the Act of 1993 overrides the powers of the Company Court under Sections 442, 446 & 537 of the Act of 1956 and no directive could be issued by the Company Court in respect of proceedings before DRT. The Official Liquidator as representative of the workers' interest in the winding up proceedings would only have a right to be associated with the sale of the mortgaged assets of the Company in liquidatio .....

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appeal against the exercise any of powers under Sections 25-30 of the Act of 1993 by the Recovery Officer. Reference has been made to the conclusions of the Apex Court in para 31 and 35 which are reproduced hereinbelow: 31. The aforesaid analysis makes it luculent that the DRT has exclusive jurisdiction to sell the properties in a proceeding instituted by the banks or financial institutions, but at the time of auction and sale, it is required to associate the Official Liquidator. The said princ .....

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o before the DRT challenging the sale and if the Official Liquidator approaches the Company Court, then such a situation would only bring anarchy in the realm of adjudication. The aforesaid submission of the learned senior counsel commends acceptance as the intendment of the legislature is that the dues of the banks and financial institutions are realized in promptitude. It is to be noted that when there is inflation in the economy, the value of the mortgaged property/assets depreciates with the .....

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her to approach the DRT or the Company Court. The language of the RDB Act, being clear, provides that any person aggrieved can prefer an appeal. The Official Liquidator whose association is mandatorily required can indubitably be regarded as a person aggrieved relating to the action taken by the Recovery Officer which would include the manner in which the auction is conducted or the sale is confirmed. Under these circumstances, the Official Liquidator cannot even take recourse to the doctrine of .....

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urse to the mode of appeal and further appeal under the RDB Act and not approach the Company Court to set aside the auction or confirmation of sale when a sale has been confirmed by the Recovery Officer under the RDB Act. Mr. Ashok Mehta also submitted that the Apex Court in the case of Official Liquidator, Uttar Pradesh & Uttarakhand (Supra) referring to its earlier judgment in M.V. Janardhan Reddy (Supra) distinguished it and held that it was a case turning on its own facts where the issue .....

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Janardhan Reddy (Supra) is not an authority for the proposition that the Company Court has jurisdiction to set aside an auction sale conducted by the Recovery Officer. Heard. Considered. In the state of law delineated in the judgments of the Apex Court in Official Liquidator, Uttar Pradesh & Uttarakhand (Supra) and Canara Bank (Supra), it is pellucid that the DRT has exclusive jurisdiction in matters relating to proceedings taken by the secured creditors for recovery of debts against the def .....

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nardhan Reddy (Supra) is a peculiar one which turned on its own facts. Albeit the Apex court did not unturn it even while noting it in Official Liquidator, Uttar Pradesh & Uttarakhand (Supra) yet made it absolutely clear that it could not be held to be binding authority for the proposition that the Official Liquidator could approach the Company court to set aside the auction sale conducted and confirmed by the Recovery Officer, DRT. Reverting the facts of the present case, it is indeed true .....

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s dated 18.09.2015 and 04.12.2015. In the circumstances, I am of the considered view, as rightly argued by Mr. Ashok Mehta, appearing for secured creditor that the confirmation of the auction dated 19.01.2015 by the Recovery Officer under order dated 11.12.2015 cannot be faulted for being without jurisdiction and/or contrary to the order dated 29.11.2012 passed by this court. The argument of Mr. Gaurav Sharma on this count is founded upon a misreading of the order dated 29.11.2012 and overlooks .....

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of a dispute covered under Section 17 of the Act of 1993, the Company Court could inter-meddle. Such a direction would be plainly contrary to the clear and categorical statement of law by the Apex court in the case of Canara Bank (Supra) wherein it was unequivocally elucidated that the DRT alone had absolute and exclusive jurisdiction in matters of adjudication and recovery of debts of secured creditors without any warrant of interference by the Company Court even in the event of the judgment d .....

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n issued and registered on payment of requisite stamp duty. The order of confirmation passed by the Recovery Officer is appealable under the Act of 1993. As held by the Apex Court in the case of Official Liquidator, Uttar Pradesh & Uttarakhand (Supra) even in the event of the Official Liquidator being aggrieved by the order of the Recovery Officer, his remedy is not to approach the Company Court but the Appellate Authority i.e. DRT under the Act of 1993. The same situation also obtains in re .....

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r rejecting the objections to an auction sale and confirming the bid of the highest bidder at an auction held by him following a recovery certificate issued by the DRT resulting from an adjudication of an application under Section 19 of the Act of 1993 filed by the secured creditor or seek to appropriate the Recovery Officer's power to confirm a bid at an auction sale held by the Recovery Officer, even on permission being granted by a Company Court to a secured creditor to stay outside windi .....

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